Borrowing costs

Government borrowing costs continue to fall, down 6 basis points to 7.46%

The cost of borrowing for states fell for the fourth consecutive week, as the weighted average threshold eased 6 basis points to 7.46% in Tuesday’s weekly auction.

Ten states raised Rs 10,500 crore in the latest state development loan auction, which is 1.5% higher than indicated in the borrowing schedule, the first in a few years. Since the Covid outbreak, states had been borrowing far less than the amount shown thanks to higher grants from the central government.

Last week, the Center released Rs 58,300 crore as fiscal decentralization for July, up from Rs 47,600 crore each in the first quarter. Additionally, the Center had approved Rs 31,500 crore of special aid for capital expenditure to 10 states during that month.

The weighted average threshold fell by 6 basis points to 7.46% compared to last week, despite the weighted average duration falling from 13 to 14 years, and the difference between the 10-year public debt and the 10-year G-Secs yield declined to 37 basis points from 39 basis points last week, according to analysis by Icra Ratings.

Reflecting the downward trend, the yield on the 10-year G-sec fell to 7.08% from 7.14% last Tuesday.

Additionally, the weighted average cutoff for 10-year government bonds fell to 7.45% today from 7.53% last week. As a result, the spread between the weighted average 10-year government debt and the new 10-year G-Secs yield fell to 37 basis points from 39 basis points.

Himachal Pradesh, Madhya Pradesh, Rajasthan and Sikkim, which had not indicated their participation in the auction, issued Rs 5,800 crore, while Goa borrowed Rs 800 crore more than indicated. In contrast, Haryana, Kerala, Meghalaya, Tamil Nadu and Bengal did not participate in the auction even though they indicated a combined loan of Rs 5,200 crore.